EuroChem reveals phosphate expansion plans at Kovdor

By James Sean Dickson
Published: Wednesday, 27 May 2015

The phosphate miner is to extend its mine life while pursuing cost-cutting via vertical integration. EuroChem says it expects to beat oversupply situation with economics.

Switzerland-headquartered phosphate miner EuroChem has given details of its plans to expand production at its sites in Kovdor, northwest Russia, and at other deposits across the federation.

Speaking to IM during a visit to the company’s Kovdorskiy apatite (phosphate), iron ore and baddeleyite (zirconia) mine in Kovdor, EuroChem’s mining director, Clark Bailey, said that expanding the property will add about a decade to its production life. 

"With our new apatite-staffelite deposit, we have around 10 years of production – and this production more than replaces what we had been processing from the old tailings [piled on top of the resource] which is now finished," Bailey told IM.

The apatite-staffelite plant is capable of adding 948,000 tpa apatite concentrate and 130,000 tpa iron ore capacity to Kovdorskiy’s operations and will bring the total annual apatite concentrate production capacity at the site to 3.4m tpa by 2018.

Further developments at the site – which would see an additional apatite-carbonatite section of the ore body extracted from 2024, reaching full production in 2027 – will ultimately take EuroChem’s apatite concentrate production capacity at Kovdorskiy to a projected 4.24m tpa, while iron ore capacity will increase to approximately 7.75m tpa. These are respective increases on 2015’s capacity of 49% and 36%.

EuroChem purchased the Kovdorskiy open pit mine and processing facility in 2002 and the site now produces 2.5m tpa apatite concentrate, 5.6m tpa iron concentrate and 8,000 tpa baddeleyite concentrate, the last of these being used in advanced ceramics, electronic ceramics, pigments and refractories.

The mine is currently 414 metres deep – this can be sustained for another 460 metres until 2049 with changes, when the company would be forced to switch to underground mining methods. Borehole data demonstrate that the vertical deposit goes down to more than 2,000 metres below Baltic Sea level.

"To continue with the existing main open pit, we will have to expand the pit edges to avoid steepening the walls – that or go underground."

"Then, after the apatite-staffelite deposit, we will be ready to process ore from yet another pit, which we refer to as our apatite-carbonite pit, to continue to ramp up and extend our production," Bailey said.

This pit edge expansion will cost the company $104m in capex, not least because some of the mine’s older buildings will need to be moved.

"Most of these changes would have been in our upgrade and renovation programme in any case," said Bailey.

News 18 

Processing facilities at EuroChem’s Kovdorskiy mine,
the second largest producer of apatite concentrate in Russia.
James Sean Dickson, Flickr 

Vertically integrated fertiliser production

EuroChem’s CEO, Dmitry Strezhnev, said: "The launch of the new processing plant at Kovdorskiy is an important step in the group’s strategy towards self-sufficiency and the further development of our vertically integrated business model."

Integrated fertiliser production is currently dominated by North American agrimineral majors, namely Potash Corp. of Saskatchewan (PotashCorp.), Agrium Inc. and The Mosaic Co. 

Complex fertilisers contain a mixture of components – with ingredients like phosphate, potash and nitrogen or ammonia (NH3) all being mixed in specific proportions for particular soil types. Producers of one mineral that wish to enter the complex fertilisers market then typically have to externally source the extra components they do not produce themselves.

To supply its energy needs for the energy-intensive process of nitrogen fixation for fertiliser products, in early April 2015, EuroChem increased its internal gas supply to 25% of its requirement through the purchase of Astrakhan Oil and Gas Co. OAO, a Russian gas company, to ensure costs could be tied down in what has been a volatile hydrocarbons market in the last 10 years. This compares to its 75% self-sufficiency in phosphate.

Additionally, EuroChem is looking to enter the equally disrupted potash market by opening its VolgaKaliy and Usolskiy potash projects, located in Volgograd Oblast and Perm Krai, as active mines. VolgaKaliy is on track to commence production in 2017, for a total capacity of 8m tpa, or around 10% of global 2014 capacity.

Potash has been in an oversupply situation for at least five years, however, with capacity expansions set to increase the supply to demand ratio over the next five years.

Olivier Harvey, EuroChem’s head of investor relations, said that EuroChem can beat the oversupply situation because it is projected to sit on the far left of the potash cost curve. Seeking customers in growth markets with little internal production is important, he noted, singling out Brazil and Latin America.

"We are aiming to be a top four potash producer," Harvey said. "We are also aiming to be among only four companies to produce nitrogen, phosphates and potash."

"Some big mines across the industry are closing, and replacement mines like Piccadilly, [owned by PotashCorp. in New Brunswick, Canada,] are not making up for this," Bailey added.

Benefitting from lower prices

Despite the approximate halving of iron ore sales prices over the last year, EuroChem is still making a profit on its iron operation at Kovdorskiy, Harvey told IM.

"You have to remember that, if anything, it is a by-product of apatite production at Kovdorskiy, and a by-product that can be sold to our advantage," Harvey said.

The price falls for potash that occurred after the 2013 split of Russian potash producer Uralkali OAO from the Belarusian Potash Co. (BPC) marketing agreement with Belarus-based potash miner Belaruskali OAO – and historically low phosphate prices – may even end up benefiting EuroChem, Olivier said, owing to the potential for higher-cost projects to be wound down.